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Enforcement as Substance in Tax Compliance

71 Pages Posted: 7 May 2013 Last revised: 4 Nov 2013

Leandra Lederman

Indiana University Maurer School of Law

Ted M. Sichelman

University of San Diego School of Law

Date Written: May 6, 2013

Abstract

It is well known that the government’s complete failure to enforce a law can nullify that law. But what are the effects of partial enforcement? This Article shows that imperfect enforcement can alter the de facto content of the written law in predictable and beneficial ways. Specifically, in the tax compliance context, even if perfect enforcement were costless, it would not always be socially optimal. When improving the substantive law is infeasible, the enforcement agency can effect beneficial changes in the law by adopting a probabilistic enforcement scheme that varies according to the category of taxpayer and type of transaction. Our model shows that properly “measuring” enforcement in this manner can increase overall social welfare without reducing tax revenues. Unlike case-by-case discretionary enforcement, which often results in costly uncertainty, measured enforcement operates via systemic, published policies that legal actors can respond to predictably. Accordingly, measured enforcement can offer substantial benefits not readily obtained through traditional lawmaking or enforcement schemes.

Keywords: tax compliance, tax enforcement, probabilistic enforcement, uncertainty

JEL Classification: H2, H21, H26, K34, K42

Suggested Citation

Lederman, Leandra and Sichelman, Ted M., Enforcement as Substance in Tax Compliance (May 6, 2013). 70 Washington & Lee L. Rev. 1679 (2013); San Diego Legal Studies Paper No. 13-117; Indiana Legal Studies Research Paper No. 236. Available at SSRN: https://ssrn.com/abstract=2261507

Leandra Lederman

Indiana University Maurer School of Law ( email )

211 S. Indiana Avenue
Bloomington, IN 47405
United States
(812) 855-6149 (Phone)
(812) 855-0555 (Fax)

HOME PAGE: http://www.law.indiana.edu/people/lederman

Ted M. Sichelman (Contact Author)

University of San Diego School of Law ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States
(619) 260-7512 (Phone)
(619) 260-2748 (Fax)

HOME PAGE: http://https://www.sandiego.edu/law/faculty/profiles/bio.php?ID=795

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